Super Micro Computer (SMCI 5.04%) stock soared through the first half of the year with a triple-digit gain that even beat that of artificial intelligence (AI) market star Nvidia. The reason for this positive momentum was simple: Customers flocked to Supermicro for its servers and other equipment for their AI data centers, and this translated into triple-digit revenue growth.
In recent weeks, however, Supermico has faced some headwinds, and these have weighed on the share performance of this once high-flying stock. Hindenburg Research released a short report, alleging troubles at the company -- and a few weeks later, The Wall Street Journal reported that the Justice Department had launched a probe into the company.
On top of this, Supermicro is late filing its 10-K annual report, a move that made investors worry about the possibility of changes to earnings figures. A few days ago, however, the company released one piece of news that could be worth billions of dollars -- could this turn things around for this recently suffering stock?
Image source: Getty Images.
Working with Nvidia
First, a bit of background on Supermicro and its path so far. The company makes workstations, servers and other equipment central to today's AI data centers. It works closely with the major chip designers, including Nvidia, to immediately include their latest innovations in its products. This has prompted customers to turn to this equipment maker because they know they can quickly get their hands on the latest technologies.
The result is booming earnings, with sales in the latest quarter rising in the triple digits and net income gaining in the double digits. As of this year, the company's quarterly revenue has topped annual revenue as recently as 2021.
Now a look at the recent challenges. The Hindenburg report includes allegations of "glaring accounting red flags" -- but Supermicro responded, calling statements in the report "false or inaccurate." It's also important to remember that Hindenburg's short position in the stock means it has a bias toward the stock falling -- and that makes it difficult to rely on it as a source of information.
Supermicro declined to comment on the WSJ report. As for the 10-K delay, the company said it doesn't expect any major changes to earnings results.
Though Supermicro's response should ease some of investors' concerns, the stock still has stagnated -- until this week, when the company released one piece of encouraging news. Supermicro said that it's currently shipping more than 100,000 graphics processing units (GPU) for AI per quarter. If the price of an Nvidia GPU is about $30,000, the order value would amount to billions of dollars.
NASDAQ: SMCI
Key Data Points
A leader in liquid cooling
Another very important detail: Supermicro says it's confirming its position as the leader in the liquid cooling market after delivering more than 2,000 liquid-cooled racks since June. Why is this news so important? The GPU news reinforces what we've seen so far in Supermicro's earnings reports -- that demand for its systems is strong, which is translating into billions of dollars in revenue.
The liquid cooling trend also is key because this space could be a significant growth driver in the months and years to come. One of the biggest challenges in an AI data center is the heat produced by these levels of computational power -- but liquid cooling is a very effective way of handling that problem. Supermicro has built expertise in the area and predicts it could dominate in this new growth market.
Let's get back to our question: Could this turn things around for Supermicro?
This clearly is a positive sign for the company's earnings in the coming quarter and beyond and should boost the confidence of investors who may be worried about the company's earnings potential. Still, the short report and Wall Street Journal article may continue to weigh on the stock until uncertainties are completely lifted.
What does this mean for investors? Cautious investors should remain on the sidelines as the recent challenges remain a risk for the stock. But aggressive investors, with their confidence lifted by the recent Supermicro news, might see now as a great opportunity to buy this AI stock on the dip.
